Statement of U.S. Senator Russ Feingold on the Involuntary Bankruptcy Improvement Act

Mr. President, today I introduce the ``Involuntary Bankruptcy Improvement Act,'' along with Senator LEAHY, the ranking member of the Judiciary Committee, and my colleague Senator KOHL, the senior Senator from Wisconsin. This bill addresses the growing problem of the use of involuntary bankruptcy petitions as a means to harass public officials. A similar bill has been introduced in the other body by the Chairman of the House Judiciary Committee. I believe this bill should be enacted on its own as soon as possible or, if necessary, be a part of any bankruptcy-related legislation that goes through the Congress this year.

Involuntary bankruptcy petitions are a rarely used, but legitimate, creditor tool to prevent the wasting of an asset that would otherwise be available to satisfy creditor claims. Unfortunately, tax protestors and others with real or imagined grievances against the government have filed fraudulent involuntary bankruptcy petitions against government officials as a way to harass and harm them. This problem came to my attention recently because of a case in my home State of Wisconsin.

In that case, a man named Steven Magritz undertook a vendetta against thirty-six Ozaukee County officials after the County pursued a foreclosure action against him for failing to pay taxes by filing involuntary bankruptcy petitions against those officials. Although the petitions were ultimately dismissed and Magritz was convicted of criminal slander and sentenced to five years in prison, the petitions had, and are still having, an impact on the credit ratings of the officials.

Current law provides for punitive damages to be assessed against someone who files an erroneous petition of this kind. But because bankruptcy filings are public records and credit reporting agencies include information in their reports for ten years, erroneous or fraudulent filings can have a devastating impact on the credit ratings of the individuals involved even if the perpetrator is punished. The local government officials that were the subject of this vendetta have had great difficulty in obtaining loans or refinancing their homes.

Although a comprehensive study of this problem has not been done, I understand that fraudulent involuntary bankruptcy petitions have been filed against federal district court judges in Ohio and Maine, a U.S. Attorney in Maine, and IRS agents in Ohio. A district in California reported that over 10 percent of the involuntary bankruptcy petitions filed in recent years were likely filed in bad faith.

The bill I am introducing today will address this problem in two ways. First, it requires the bankruptcy court on motion of the debtor to expunge from the court's file all records relating to the filing of an involuntary petition and any references to such petition, if 1. the debtor is an individual; 2. the petition is dismissed; and 3. the petition is false or contains a materially false, fictitious, or fraudulent statement.

Second, the bill authorizes a bankruptcy court to prohibit credit reporting agencies from issuing a consumer report that contains any information relating to an involuntary bankruptcy petition or to the case commenced by such petition where the debtor is an individual and the court has dismissed the petition.

These steps will retain involuntary bankruptcy as a legitimate tool to preserve debtor assets, but will allow the courts to address the real harm that can befall an innocent victim of harassment. I urge my colleagues to support this reasonable and necessary reform of the bankruptcy laws.